Category Archives: Austerity

This week the issue of corporate Tax Avoidance was in the news – again. Firstly it was reported that Thames Water, despite making profits of £259m, will not being paying any tax this year*. (With corporation tax at 20% that’s a loss to the taxpayer of £52m – even more galling when you consider that Thames is intending to pay £100m in dividends to its various shareholders.) Thames has managed to do this by making judicious use of ‘capital allowances’.

Next up, there were protests outside high-street favourite Boots, following on from a campaign to get the government to investigate the company’s tax affairs. Since being taken private in 2007 it is estimated that the company has avoided about £1.3bn in tax* (enough to cover 3 years of NHS prescription fees) by channeling its profits through Tax Havens and using Limited Liability Partnerships .

And finally Vodafone were in the frame again, and the subject of a series of protests by UK Uncut about their perpetual tax avoidance tactics. Despite being headquartered in the UK, they run large amounts of their profits through the tax haven of Luxembourg, the result of which is that, even though the UK is highly profitable for them, they haven’t paid any corporation tax here since 2011. They are also still bearing bad blood after a dodgy tax deal with the Inland Revenue in 2001 let them off £6bn in tax.

These are of course only the latest in a long series of scandals involving companies such as Starbucks, Google, Amazon, Facebook, Apple etc – all companies which have extensive operations in this country but claim, incredibly, to make almost no profit here. There are many legal loopholes they can use to avoid tax, the most common of which is Transfer Pricing. However the crucial point is this – although it is very easy to point the finger of blame at these outfits, ultimate responsibility for all this deception lies with the government. Legislation can easily be made to deal with tax loopholes, but the government simply refuses to do it – in fact, worse, they help facilitate it (for example George Osborne’s recent changes to the Controlled Foreign Companies act has made tax avoidance by UK-based multinationals much easier.) The excuse they give is that the UK must be ‘competitive’ on tax law in order to attract businesses. Competitive on tax of course means competing with other countries to see who can charge the least tax and, by necessity, who can make the largest cutbacks to public services; and as all countries are doing this it becomes nothing other than a perpetual spiral of decline – the so-called ‘race to the bottom’ – the main tool of which is Austerity. (It’s also worth remembering that with tax avoidance costing the economy £95bn/year, clamping down on that would remove the requirement for austerity completely). In addition, and ironically for those who support the idea of free markets, such practices by multinationals give them a huge advantage over smaller UK companies who can’t avoid tax, the result of which is that many small UK businesses could be driven into bankruptcy.

It is obviously unacceptable that large, unaccountable corporations should be able to hold governments to ransom in this way, but they can only do it because governments allow them to, under the guise of being ‘pro-business’. (Helped along with a fair bit of funding for their political parties and some strong behind-the-scenes lobbying as well.) In this way our whole democratic system has been corrupted by the power of money, and true power now lies with those who control the politicians, not we who elect them. And until people wake up and stop voting for the same old parties, this situation will continue indefinitely, with ever increasing wealth for those at the top, and ever-declining living-standards for those at the bottom.

The ongoing takeover battle for British Pharmaceutical giant AstraZeneca shows the inherent contradictions in Free-Market Capitalist thinking, and in particular the conflict between what is good for the people, and what is good for the massive corporations that bestride our planet.

Free Market theory is unequivocal – you let businesses do what they want, and competition will ensure they generate vast wealth which will benefit us all. Except of course it doesn’t work that way, which is why the government is in such a quandary over whether to let the takeover by Pfizer go ahead.

It is obvious to everyone that the only thing that matters to Pfizer is making money for themselves, and that they will stop at nothing to achieve that. If it benefits them financially then you can guarantee that jobs will be lost, research operations will be closed down or moved abroad, communities will be destroyed, and a major part of the British Pharmaceutical industry decimated. The British government also knows full-well that any guarantee it gets from Pfizer in advance of the takeover won’t be worth the paper it’s written on*. Just as with the takeover of Cadburys by Kraft a few years ago, once the deal is complete they will go ahead and do whatever they want. (And in any case what is the use of a ‘five year’ guarantee – what Pfizer are currently offering – compared to the decades it has taken to build AstraZeneca into the company it is today).

In addition, Pfizer’s promise to move its headquarters to the UK for tax purposes (as the UK currently has lower corporation tax than the US) will of course only last until another country undercuts our rate of tax, at which point they will be off. (This is the so-called ‘race to the bottom’, where countries compete to offer the lowest tax rate to businesses: with the only winners being the corporations who play countries off against each other, and the losers being ordinary people who see their public services relentlessly cut as a result of the lost tax-revenue).

So the politicians stutter and prevaricate, unable to admit that the economic philosophy they sell to us is fundamentally flawed, while business leaders rub their hands in glee at the prospect of yet more wealth being transferred into their greedy hands from the impoverished masses . Until we have a political system that truly speaks for the interests of ordinary people, and an economic system that shares wealth equitably, takeovers like this will continue, and the increasing division of our society between the haves and the have-nots will only get worse.

Even in this age of dreadful Austerity, I’m sure no-one would have thought that the concept of free state education for all children could ever possibly be threatened. However a recently-published report shows that due to cutbacks, a creeping threat now exists even in this area, and that 1 in 4 state schools are now asking parents for ‘contributions’ for basic requirements such as pens, paper, textbooks or activities related to the compulsory curriculum.* Although most requests are so far quite small, a few schools are asking for hundreds of pounds from each parent per year. In some cases, where not enough parents are able or willing to pay-up, essential teaching activities are being cancelled.

One of the most fundamental parts of a civilised society is a good education system, and one of the most essential aspects of it is that the quality of education should not be dependent on parental wealth. Otherwise inequality becomes entrenched, and children of poor parents are burdened with a massive disadvantage in life. If cutbacks in the name of Austerity are starting to impact on our ability to provide this – and as this is clearly the thin end of a wedge, the situation is only likely to get worse – then clearly our society is moving in the wrong direction. Of course there’s no shortage of money in our society: if the government had the political will to clamp down on Tax Avoidance that alone would bring in £95bn each year, enough to fund plenty of schools. But tax avoiders are the wealthy friends of our current political class, whereas people who most need a good state-education system are the ordinary public whom the government cares little about. So you can be pretty sure this trend will continue, with wealthy parents continuing to be able to afford a good education for their offspring, while state schools are forced to make ever-greater cutbacks and provide a steadily deteriorating standard of tuition.

The government seems to have found a new way to make our already very-unequal society even more unequal. Isn’t it just great!

STOP PRESS 2/10/14:At the Tory Party Conference this week it has been announced there will be pension changes which will enable the very wealthy to pass on even more of their inheritance to their children, and tax cuts which will disproportionately benefit the well-off: all of which will be funded by a freeze on benefits and continuing Austerity. The Tories are cynically continuing to bribe their so-called ‘core’ voters, with no concern for the hardship they will cause to everyone else.

This week’s budget has laid the ground for where our political parties, and indeed our society, is headed over the next few years. The budget was actually very well put-together, if the objective of the Tory Party is simply to secure enough votes to get itself elected again, and not to create a better society for us all.

In our current – deeply flawed – political system, all a party needs to do to get a majority in parliament, and so form a government, is secure about 37% of the vote. There are two ways they can do this – either produce a manifesto which they believe is good for the country as a whole, and hope that 37% of the people agree with them; or produce a manifesto that specifically benefits around 35-40% of the population, and let the rest go hang. Guess which option the Tories are going for? As the party of the well-off they have produced policies which benefit wealthy pensioners (scrapping annuities); people with lots of spare cash (making ISA’s more attractive); and of course the usual round of tax breaks for businesses. At the other end of society – people whose votes they don’t care about – they’re pushing ahead with benefits caps and of course the whole agenda of Austerity.

Free-market Capitalism inevitably leads to ever greater inequality and consequently an ever more divided society. Therefore as time goes on any political party which supports this economic system, will have to decide which part of our divided society it caters for (as it becomes impossible to produce policies which benefit everyone), and ignore the needs of everyone else. The Tories are inevitably targeting the wealthiest end of society. Some people might say they have always done this but that’s actually not true – Margaret Thatcher for example secured her massive majorities on a wave of Tory working class votes (something unlikely to be repeated now). Some people may look to the Labour Party for answers, but unfortunately, despite making favourable noises occasionally on things like energy prices, fundamentally they support our current economic system, and therefore nothing will really change with them either (in fact they actually agree with the Tories on most economic policies anyway, and also don’t forget that people voted for Blair as a replacement for the Tories last time and look where that led!) The fact is nothing is going to get any better until we change our entire democratic and economic system, and that’s not going to happen with any of the main political parties or current batch of politicians. We need change, and only an upswelling of popular discontent will bring it.

For more on the inherent problems of the free-market capitalist system click here. And for more on how we might be able to start changing things for the better click here.

Figures out this week show just how divided our society is becoming, a trend which is ever more extreme and shocking. It was revealed yesterday – by Oxfam* – that the 5 richest families in the country have as much wealth between them as the poorest 20% (12.6m people). This came hot on the heels of a report in January – also by Oxfam – that the 85 richest people in the world have as much wealth as the poorest 50% (that’s the poorest 3.5 billion people). It’s actually difficult to comprehend such vast figures, though they clearly show just how very wrong our society has become.

Land near Buckingham Palace forms a large part of the Grosvenor Family Wealth. Photo by DAVID ILIFF. License: CC-BY-SA 3.0

There are many different reasons for such vast wealth accumulating in the hands of a few: inherited land wealth (The Duke of Westminster’s family and the Cadogan family); buying up natural resources (the Reuben Brothers); or just being successful businessmen (the Hindujas and Mike Ashley’s family) but one thing is certain – in our current system of ‘free market’ capitalism and light-touch government regulation, such vast treasures of wealth will never filter down to the population at large, as the wealthy will continue to use all means at their disposal to keep it to themselves. That means a mixture of employing lawyers to exploit legal loopholes, using every tax-avoidance measure they can think of, using off-shore tax havens to stash their cash away and out of the sight, and using a mixture of lobbying and party-funding to ‘buy’ favourable regulation from their friends in government. While they do that the rest of the population continue to suffer Austerity and poverty, which has now got so bad that, for the first time ever, more working households are living in poverty than workless ones.

Any right-thinking person knows what’s going on is wrong, but not everyone realizes just how corrupt is the system which sustains it. All our main political parties are in on this, and until we get rid of them nothing, sadly, is going to change. For some ideas of how we can instigate change click here.

So today it has been announced that because of continued ‘Austerity’, public sector workers will this year only get a 1% pay-rise – a cut in real terms with inflation at 2% – and because of particular financial problems at the NHS, 600,000 nurses and other essential NHS staff will not even be given that.* It’s funny isn’t it, how the government places little value on essential public services, and does its best to run them down, while at the same time, and in thrall to the City of London, George Osbourne fights tooth-and-nail to oppose EU legislation that may curtail bankers’ bonuses. So bankers are more valuable to this country than nurses? Really? Never mind they only make money for themselves, and never mind they were the cause of this huge financial mess in the first place (necessitating a tax-payer funded bailout that’s cost this country £1.3tr – that would have paid for a lot of nurses!)

No, with more than half its funding coming from the City of London, the Tory Party’s allegiances lie with the bankers; while being idealogically opposed to public services, they are doing everything they can to run down the NHS and convince us it’s no longer financially viable. However the NHS is only in financial difficulties because the Tories made it that way, due to the creation of Trusts and the insanity of PFI financing*. Vast amounts of cash are also getting lost in the privatisation of NHS services (often going to companies that are providing financial support for the Tories), while it’s also worth noting that due to the belief in ‘free-market’ economics, yet more NHS money gets wasted paying the salaries of ‘fat-cat’ administrators, with no fewer than 2,400 of them earning more than the Prime Minister!

The fabric of our society is being destroyed while we watch, and unless we can get ourselves a government not corrupted by the power of money it can only get worse.

For more on how Party Funding is corrupting the political process, including NHS policy, click here.

Anyone who believes the government line that the alleged turn-round in the economy will lead to better living conditions for all, has failed to understand the nature of our free-market economic system. Last week we heard how the bonus culture has returned with a vengeance for bankers and other top-earners, but this week we hear that local councils – under the cosh financially and having to make £2bn of cutbacks this year – are scrapping many basic public services, or only making them available to those who can pay*. So today we learn that Portsmouth Council is going to start charging for children in care, and will also now charge for dealing with rat infestations (so presumably poor people will soon be heading back to the rat-infested slum conditions of previous centuries ). Luton council is going to start charging for some types of domestic waste removal, while Copeland council is increasing cremation fees.

At the same time a BBC Panorama investigation (program available on BBC Iplayer) has discovered that more than a third of councils in England and Wales are now being forced to subsidise foodbanks, to deal with the increasing levels of food poverty as a result of the government policy of Austerity. So while at the top of society the good times are back and the prices of champagne and other luxury goods soar (last week it was announced that Britain has overtaken Germany as the biggest European buyer of Ferraris, and is now second only to America in world sales), in the lower levels of society ordinary people continue to suffer. Unfortunately this is all the inevitable consequence of a free-market economic system, and things will only get worse unless we take a long hard look at our society and alter the way we do things. For a fuller picture of what our society will look like if we don’t change course pretty soon, click here.